EU to drive hard bargain in bailout of Portugal

Portugal will be offered a bailout worth €80bn (£71bn), European Union finance ministers meeting in Budapest agreed yesterday, but only if the parties contesting the country's general election in June agree to a package of austerity measures and reforms.

The summit agreed to work towards achieving a deal for Portugal by mid-May, with implementation scheduled to begin after the election on 5 June. "We call on all political parties in Portugal to swiftly conclude an agreement on the adjustment programme," ministers said in a communiqué. An €80bn rescue would require the UK to contribute €4.8bn (£4.2bn).

It seems Portugal may have to accept much tougher terms than its prime minister, Jose Socrates, had been planning before the Portuguese parliament voted down his proposals, triggering the election.

Olli Rehn, the EU's Economic and Monetary Affairs Commissioner, warned those proposals would be a "starting point" for negotiators from the EU, the European Central Bank and the International Monetary Fund.

Jyrki Katainen, the Finnish Finance Minister, added: "The package must be really strict because otherwise it does not make any sense to guarantee anybody's loan."

Portugal's politicians have been at each other's throats in recent weeks, and EU officials are desperate to ensure they get support for the deal from all the potential participants in their next government.

That nervousness was reflected in the bond markets yesterday, where the yields on five-year bonds issued by the Portuguese government rose above 10 per cent.